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The Hong Kong Competition Commission (HKCC) has today published, for public comment, a draft leniency policy under the Competition Ordinance. This policy is likely to be a critical piece of the nascent Hong Kong competition law regime which is coming into force on 14 December 2015.

The draft leniency policy (the Draft Policy) sets out the proposed scope of the leniency regime under the Competition Ordinance, the mechanisms in terms of applying for leniency and the obligations imposed on the applicant in order to benefit from the leniency regime.

The general significance of leniency in antitrust regimes

A leniency policy offers companies involved in anti­competitive conduct an opportunity to blow the whistle on the cartel by cooperating with the antitrust authority in exchange for immunity from fines which would be otherwise imposed by that authority. A leniency policy also benefits the antitrust authorities since it pierces “the cloak of secrecy” and increases the opportunities for the authorities to uncover evidence of such activities.

As a result, leniency applications are deemed to be the most significant source of antitrust investigations in established antitrust regimes and are considered to have a significant deterrent effect on cartels. The draft policy is therefore a critical feature of Hong Kong’s new competition regime.

Key features of the HKCC’s Draft Policy

We highlight below a few of the key features of the Draft Policy:

Leniency agreement in exchange for full cooperation. The HKCC will agree not to initiate proceedings for pecuniary penalties at the Competition Tribunal against the leniency applicant in exchange for “full and true disclosure” by that applicant; the leniency agreement is, in effect, a non­prosecution agreement.

Leniency is only available for “cartels”. Only anti­competitive conduct between competitors which involves the fixing of prices, market sharing, restriction of output or bid rigging is susceptible to being the subject of a leniency application under the Draft Policy. In this respect, the scope of the Draft Policy is broadly in line with the approach of many established antitrust authorities such as the US, the EU and many EU Member States.

Only the first leniency applicant will receive immunity from fines. The Draft Policy states that only the first applicant will benefit from immunity under the Competition Ordinance. The Draft Policy mentions that other companies that cooperate with any investigation may receive some form of “favourable treatment” by the HKCC. However, the form of that favourable treatment is not specified.

The obligations on the leniency applicant. To benefit from the immunity conferred by the leniency agreement, the applicant must sign a statement of facts admitting its participation in the cartel. The HKCC may subsequently present this signed statement to the Competition Tribunal for a declaratory judgment in relation to the facts set out in the statement. The applicant must also provide “continuing cooperation” to the HKCC including in subsequent Competition Tribunal proceedings against other companies involved in the alleged conduct. Based on our experience in the US and Europe, this can be a burdensome obligation.

No immunity from follow­on damage claims. The Draft Policy confirms that a successful leniency applicant will, however, not be immune from private follow­on actions for damages from any person who has suffered loss or damage as a result of the alleged conduct. In that context, the declaratory judgment potentially sought by the HKCC as part of the leniency process may have considerable implications for an applicant in such follow­on damages cases and may reduce the incentives for companies considering a leniency application.

Next steps

The deadline for providing comments on the Draft Policy to the HKCC is 23 October 2015. We will be providing the HKCC with our observation and publish a detailed reflective briefing on the leniency policy once it is published in final form.

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